BankDhofar Core banking transformation for growth,efficiency, and control

Transcription

1 Case Study BankDhofar Core banking transformation for growth,efficiency, and control

2 E x e c u t i v e s u m m a r y BankDhofar, one of the leading banks in the Sultanate of Oman, operates 59 branches, a large network of ATMs across the country, and has assets worth over RO 1.6 billion. In end 2008, the Bank started a core banking transformation project, migrating from legacy banking technology to Finacle, and changing much of the banking application portfolio and infrastructure with it. Similar to most banks that have embarked on core banking roll out projects in recent times, BankDhofar was aiming at achieving the high level of flexibility that contemporary banking technology offers. H i g h l i g h t s Over 13% RoI within 17 months of the roll out, taking into account only the most direct dollar benefits. The Finacle implementation project at BankDhofar s remarkable because the project was completed in 18 months and was largely incident free. The Bank had the problems typical of core banking systems built on an earlier generation of technology. The system was inflexible, making new product launches, on-going customization, and integration difficult. In addition, a number of key processes were not supported by the existing core banking application, leading to unacceptable levels of visibility gaps, manual work, and manual overrides, which in turn led to inefficiencies and leakages. Of course, all of the above was in addition to the central problem of older core banking systems, of down time and end-of-day reconciliations. Fortunately, there was much consensus about change, and the transition to a new core banking platform (and e-banking) was part of the Bank s five year ( ) strategic roadmap. In December 2008, after evaluating four shortlisted core banking vendors, BankDhofar started the transformation project with Finacle. The project ran for 18 months, culminating in a big bang roll out across BankDhofar s over 55 branches. The project was on time and on budget. The Bank s IT leadership attributes the project s success to a tight focus on sticking to a well defined set of requirements (and limiting scope creep) and selecting a solution with a high level of alignment with requirements (and therefore limiting customization). Ovum agrees with the two self reported critical success factors. Most projects of such scale fail because of inadequate attention to limiting scope and signing up for more customization that the solution and the company can bear. Both factors are ultimately linked to the quality of IT leadership and the organization s ability to formulate the right governance structure for high value and high risk projects. The project s success bears testimony to both. Within 17 months of roll out, the Bank has already recovered more than 13% of the project s cost through direct dollar savings and has a much higher readiness for new products and initiatives. 02

3 K e y s e l e c t i o n c r i t e r i a Finacle s standard features met out of the box requirements very well...very good fit...very good fit with middle Eastern banking requirements Ravi Khanna AGM Information Technology, BankDhofar The principle driving the selection process was out-of-the box alignment with the features laid out in the RFP. Similar to most companies of similar scale, BankDhofar has a formal evaluation frame work for all technology selection scenarios. The framework covers functional capabilities, technology, the vendor s scale (and reputation), and projected costs. Ordinarily, every factor is given equal priority. Given the importance of functional capabilities in this instance, the Bank downgraded the importance of cost and prioritized functional capabilities. The Bank believes Finacle met 80% of the requirements out-of-the-box. Requests for customizations were closely evaluated and only those with significant long terms benefits were accepted. The Bank worked on the assumption that simply getting functionality available on the earlier system to work reliably is complex enough. In enterprise IT, the importance of limiting scope has been known for a long time. However, such discipline is rarely exercised in practice. At BankDhofar, such discipline was achieved partly due to the governance structure comprising two committees the senior management committee and the steering committee. The senior management committee was staffed with all business unit heads, including the General Manager, IT, and this committee met once a week. The executive managing the transformation project reported to this committee. The other committee, the steering committee, was the final authority and comprised the Bank s most senior executives including the CEO and two individuals from the company s board. The project therefore was not lacking in senior management sponsorship. Of course in practice, project discipline and consensus comes from the leadership s ability to argue their case successfully in cross-business unit forums. And the Bank s IT leadership adhered to the limited customization principle very effectively. Finally, 83 customizations were agreed to, and were all drafted into the pre-execution project plan. The banking transformation project began in December 2008 with Infosys training the core team and with the launch of the user acquaintance testing phase. The latter involved Infosys and the Bank s team running through individual features and identifying cases for customizations. The requirements were frozen at this stage. 03

4 S o l u t i o n d e p l o y m e n t 80 % of the requirements were met out of the box The project ran for approximately 18 months, ending in a big bang roll out in July Throughout these 18 months a team of IT and business personnel, comprising employees from Infosys and the Bank (and another IT services organization for testing services), were on site and at its peak the team strength reached above 100. In addition to various IT roles, the Bank deployed 10 senior business employees, with each executive managing a project track. Twenty employees from the Bank s IT organization were deployed full time. Deepesh Saxena Senior Manager, Information Technology, BankDhofar S o l u t i o n C o m p o n e n t s Finacle Core Banking solution Finacle Treasury Finacle CRM Finacle ebanking Finacle Alert Server Jataayu Middleware solution using Websphere Message Broker and Websphere Process Server OmniDocs An interesting aspect of the project was the outsourcing of testing services to a specialist. Ovum believes that an independent testing services provider is a practice that should be far more common, particularly for transformational projects such as core banking replacement. A Project Management Office (PMO) office was set up in collaboration with a prominent consulting firm. Data migration and standardization, as would be expected of a project of this nature, was particularly challenging and went through over a dozen runs. A train-the-trainers approach was adopted for training branch employees. After a number of rounds of user acceptance testing, roll out simulations, and training, Finacle was rolled out to each of the Bank s 55 branches at one go on 4th July Over the next six months, up to January 2011, the Bank s focus was on stabilizing the new system, and this objective has been met. The Bank deployed a number of solutions in conjunction with Finacle core banking, Finacle ebanking, Finacle Treasury, Finacle Alert Server, ATM switch, investment banking system, asset and liabilities management, anti-money laundering system, integration with Automated Clearing House (ACH) and Real Time Gross Settlement (RTGS) system, middleware technology, payroll, and account management, among many others. The Bank reports no significant delays or catastrophic problems during these 18 months. Also, the big bang roll out was accomplished without incident. 04

5 F u n c t i o n a l e n h a n c e m e n t There is a much higher level of readiness for change now Ravi Khanna AGM Information Technology, BankDhofar K e y s u c c e s s F a c t o r s Strong senior management sponsorship Strong IT leadership Limiting scope creep Careful vetting of customization requests A very comprehensive list of functional enhancements was drafted as part of the RFP. Many of the functional enhancements were in effect attempts to plug blind spots and leakage points in the banking process. For example, the previous core banking system lacked a way of capturing many fee-based services, such as charging for check books, or charging penal interests. With the system unable to capture such charges, tasks were often executed at the branch level leading to a lack of oversight on many occasions. Plugging such gaps was a key focus area for BankDhofar. The following list details some of the functional enhancements achieved through the Finacle implementation project: Physical inventory of Purchase Orders and Demand Drafts. Check book issuance and management. Foreign check collection. Stop payments register. Cash-in-Till account (each teller can now have a separate account; every teller shared a common cash-in-till account earlier). Ability to configure load amendments and rescheduling (previously standing orders were necessary). Account closure. Statement of account. Account freeze status maintenance. Listing joint holders of an account. Generation of welcome letters and stop payment forms. Reques t of Visa Electron ATM cards. Comprehensive customer search. Listing/filtering accounts (through filters such as active, closed, and dormant ). Customer account summary. Detailed customer inquiry (previous system could generate very low level of detail). Deposit receipt print. From a RTGS system for branches that involved faxing forms to Muscat, the Bank has now moved on to RTG S integration at all branches. A similar transition has happened with ACH. It would be relevant to call out two important points here. The above represent functional enhancements or new features. Also, most of the above represent Finacle s off-the-shelf features. 05

6 R e t u r n o n i n v e s t ( R O I ) R O I d r i v e r s Leakage of penal interest fee income plugged through centralized solution. Ovum s (and BankDhofar s) approach to calculating Return on Investment (RoI) has been extremely conservative. BankDhofar s RoI estimates presented here takes into account a single benefit source, one that can be linked to savings in hard dollar terms with little scope for ambiguity. In the previous somewhat decentralized model, branches were responsible for collecting penal interest charges. Without central management, leakage of the penal interest stream was hard to control. Post Finacle implementation, the system of penal interest charges is part of the core banking solution, and therefore automated, non-discretionary, and completely centralized. The level of control has naturally gone up and with it the level of leakage on the penal interest for overdraft accounts revenue stream has gone down considerably. BankDhofar estimates that in the first 17 months since roll out millions have been saved due to better control. R O I Over an eighth of investments recovered in the seventeen months since roll out measuring only direct dollar Project Inception To December BankDhofar Banking Technology Transformation Project ROI Estimate And Costs And Benefits RoI of 13.1% in 17 months Costs Benefits 06

7 C o r e b a n k i n g t r a n s f o r m a t i o n i n v e s t m e n t K e y i m p l e m e n t a t i o n c o s t e l e m e n t s S e r v i c e s IT and business personnel (Bank, Infosys, and other partners) on site throughout the duration of the project A peak strength of professionals on site The figures above include around 20 IT personnel from the Bank and 10 senior employees from business units Multiple solutions from the Finacle portfolio and infrastructure software H a r d w a r e For Finacle Core, Treasury, Alerts, and CRM, four HP UX Rx6600, Rx3600 servers For the Finacle ebanking installation, two HP UX Rx 2660 servers and 2 Windows HP BL 460 blade servers RSA VeriSign certification Various network devices and an improved MPLS network The BankDhofar IT organization had the mandate of replacing solutions from the previous vendor, and the mandate to overhaul led to many other pieces of banking technology being implemented alongside core banking. From the Finacle stack, CRM, ebanking, Treasury, and the Alert Server were deployed. The list of infrastructure software deployed includes software from Websphere Message Broker, Websphere Process Server, OmniDocs (from Newgen), SigCap (from 01Systems) and database software from Oracle. The integration points were many, and some went beyond replicating the previous IT environment, such as integration with the RTGS and ACH system across branches. Integration with the ATM network, the investment banking system, the assets and liabilities management system, the anti money laundering system, the payroll system, the Accounts Payable system, the credit card system, SMS banking (integrated through the middleware platform), and the content management system (OmniDocs) were some of the 26 integration points. The figure below segments project cost from inception to roll out. Third party services cover the cost of engagement with all non-bank and non-infosys entities, such as the cost of the consultant who helped set up the Project Management Office and the cost of engaging the dedicated testing vendor. The third cost category covers all licensing cost (software from Infosys and all other software) and cost of engaging Finacle s professional services team. Quantifying Core Banking Transformation Investment (Project inception to roll out) 30.00% Hardware Third Party Services 55.00% 15.00% Licensing (Including Non -Infosys Software) and Infosys Provided Services 07

8 O p e r a t i o n a l b e n e f i t s K e y s t r a t e g i c a n d o p e r a t i o n a l b e n e f i t s A single unified and centralized core banking system. High visibility and control over processes that used to be branch-based, manual, and somewhat discretionary. A number of processes that were executed outside the core banking solution are now executed within Finacle, improving visibility. The reconciliation and availability problem has now been eliminated. Branch employees now have more time to focus on sales and high value customer service. Reduced time to launch a branch. Integration is much easier. Readiness for change is now much higher. Enhanced customer visibility Much higher level of automation. System maintenance, extensions through integrations and customization, and new product or product variant launches are all possible now at reasonable cost and reasonable time. The second key benefit of course is reducing downtime and real time reconciliation across channels. BankDhofar has experienced the entire set of standard core banking transformation benefits. Prior to Finacle, the Bank s ATM network had a planned downtime of one-two hours every day. For non-atm channels the figure was 4-5 hours per day. There is no planned down time for any channel post Finacle roll out. Most kinds of change are easier now, including launch of new branches, as the following figure illustrates. Time To Launch A New Branch Reduced From Three Days To Less Than A Day 3 Days 0.9 Days Pre - Finacle Post - Finacle 08

9 F u n c t i o n a l b e n e f i t s Over and above the many benefits that come from being on a system built on contemporary technology, BankDhofar has realized a number of functional benefits. The full list of functional enhancements that were part of the RFP was compiled in the Long list of functional enhancements section of this case study. Some of the most important categories of functional enhancements achieved are: Automation of many hitherto manual tasks: K e y f u n c t i o n a l b e n e f i t s Automation of many hitherto manual tasks. Processes that were performed outside the core banking system are now part of Finacle. Enhanced information capture and ability to retrieve customer data easily. The Bank lists a series of tasks in this category, including loan schedule payments, charge collection for balancing certificate, housing loan processing, document collection, credit appraisal, and EMI calculation.the Bank credits higher level of automation with reducing turn-aroundtime, reducing instances of error, and increasing output. Processes that were performed outside the core banking system, and are now part of Finacle: This is a large category and includes many types of processes and tasks. Generation of welcome letter, ATM card requests, cheque book requests and foreign check collection are examples. Enhanced information capture and ability to retrieve data: The Bank is now closer to the 360 degree customer information ideal. Reports are now more information dense and the error rate is lower. In addition, certain features within Finacle offer better information retrieval. As would be expected from a modern business application, the search functionality is much more robust now. 09

10 P r o j e c t s u m m a r y For most banks, the argument in favor of core banking transformation is so T h e t i m e l i n e The Bank starts searching for a new core banking system, aiming to develop a contemporary and flexible technology platform which would allow greater centralization, visibility, and flexibility. The Bank selects Finacle out of four contenders, partly on account of the solution s strong alignment with functional requirements. The project is completed in 18 months, culminating in a big bang roll out in July By July 2011 numerous functional enhancements have been achieved and IT is ready to support new business initiatives. By July 2011, a single benefit source has saved the Bank millions of dollars through better control over the penal interest charging mechanism. persuasive that a hard RoI argument is typically not necessary to make the business case. When a RoI exercise is conducted post project completion, there is some serendipity involved in finding sources of hard dollar benefits. The Bank s success (multiple banking applications deployed without major incident in 18 months) can be linked to a system of governance and leadership style that focused on defining objectives and requirements, remaining focused on the original set of requirements, and monitoring project progress closely. Core banking transformation projects have often been compared to refueling a jet in mid-air. This was certainly true for BankDhofar. Between mid-2009 and mid-2011, a time frame completely overlapping with the project and the six month post-rollout stabilization phase, the Bank grew the number of customers by nearly 25%, number of accounts by over 12%, and the number of branches by close to 10%. The most significant benefit is that IT is now ready to implement new products and initiatives that the Bank might want to launch. At this stage, there are a number of important initiatives that could be relevant to the Bank, such as the launch of Islamic banking. There are many smaller initiatives that are at various stages of being launched, such as the centralization of processes. The list of processes that would be centralized includes account opening, corporate loan disbursement, and consumer loan disbursement. The launch of e-banking alongside the new core banking platform was one of the major strategic priorities. The e-banking channel s utilization is very likely to grow by orders of magnitude, and naturally IT is ready to support this very beneficial change in channel mix. Since the roll out, the Bank has added a significant number of customers and at a future point the focus would be on increasing the number of products per customer. That branch employee time has now been freed up for high value customer conversions will certainly help increase the cross-sell ratio. To summarize, the Bank has a strong pipeline and IT is well positioned to support strategic and operational initiatives. 10

11 About Finacle Finacle from Infosys partners with banks to transform process, product and customer experience, arming them with accelerated innovation that is key to building tomorrow s bank. For more information, contact finacleweb@infosys.com Infosys Limited, Bangalore, India, Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.